Congress, Not Amazon, Messed Up the U.S. Postal Service

(Bloomberg View) -- Before the news cycle gets consumed by the U.S.-China trade war in the making, let's go back to something I find much more intriguing: the U.S. Postal Service.  Specifically, is Amazon.com Inc.'s contract with the USPS kosher, or is it a sweetheart deal that amounts to a government giveaway?

Let's get one thing out of the way up front: President Donald Trump's endless grousing about Amazon is nothing more than a thinly disguised complaint about the Washington Post, which has done a fine job reporting on his administration, revealing its many warts and ethical lapses. He has made no secret of his hostility, as a brief review of his Twitter posts would show.

But let's set that aside and try to answer whether the USPS provides an unfair subsidy to Amazon. To better understand these claims requires a fuller understanding about the Post Office.

Let's start with the USPS mandate: It was formed with a very different directive than its private-sector competitors, such as FedEx Corp. and United Parcel Service Inc. Those two giant private shippers, along with a bevy of smaller ones, are for-profit companies that can charge whatever they believe the market will bear. The USPS, by contrast, is charged with delivering to every home and business in America, no matter how remote. And, they can only charge what Congress allows; increases require approval. It also has congressional pressure and oversight on where it must maintain postal offices. The USPS has been slowly closing sites where there is insufficient customer demand. But closing an obsolete or little-used facility invariably entails a battle with each representative, who in turn faces voter anger when the local post office is targeted for closing. FedEx or UPS can open or close locations with little problem as demand and package traffic dictate.

Then there is the Postal Accountability and Enhancement Act of 2006 (PAEA), which some have taken to calling "the most insane law" ever passed by Congress. The law requires the Postal Service, which receives no taxpayer subsidies, to prefund its retirees' health benefits up to the year 2056. This is a $5 billion per year cost; it is a requirement that no other entity, private or public, has to make. If that doesn't meet the definition of insanity, I don't know what does. Without this obligation, the Post Office actually turns a profit. Some have called this a "manufactured crisis." It's also significant that lots of companies benefit from a burden that makes the USPS less competitive; these same companies might also would benefit from full USPS privatization, a goal that has been pushed by several conservative think tanks for years.

Paying retiree obligations isn't the issue here; rather, being singled out as the only company with a congressional requirement to fully fund those obligations is. It puts the USPS at a huge competitive disadvantage. Yes, a retirement crisis is brewing; most private-sector pensions are wildly underfunded. But the solution is to mandate that ALL companies cover a higher percentage of their future obligations -- not just one entity.

What about lobbying Congress for changes to these rules? Unlike private-sector entities, the Postal Service is barred from lobbying. Similar restrictions do not apply to FedEx or UPS or other carriers.

Perhaps it helps to think of the USPS as two separate entities co-existing together: On one side is the congressionally mandated operation that delivers letters everywhere in the country. This is the side that helped knit together the far-flung cities, towns and settlements that defined the U.S. at the time of the nation's founding. The modern innovations of email, texts and the internet helped turn this into a money-losing business.

The other side of the USPS is the parcel-delivery service, which is profitable. It both competes with, and provides services to, private-sector delivery businesses. 

Indeed, both UPS and FedEx contract with USPS to perform so-called last-mile delivery for their rural and most-expensive routes. They leverage the existing infrastructure of USPS to provide services for their client base without having to build that same costly last-mile infrastructure for letters and parcels. Effectively, they arbitrage what would otherwise be low-margin or unprofitable deliveries.

The problem for the USPS isn't the packages from the likes of Amazon, but rather, the rest of the Post Office’s mandate. In its annual report, the USPS noted that 2017 saw "mail volumes declined by approximately 5.0 billion pieces, or 3.6 percent, while package volumes grew by 589 million pieces, or 11.4 percent." Amazon and other internet retailers are a source of profitable deliveries for the post office; the relationship is in no way a subsidy for the retailers. Incidentally, the PAEA bars the Post Office from pricing parcel delivery below-cost.

Pricing, locations, hiring, funding? The Post Office has broad limitations about making routine business decisions that its private-sector competitors do not.

Trump has raised a valid issue in pointing out the unfair conditions under which the USPS operates. He is looking, however, at the wrong side of the problem.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”

To contact the author of this story: Barry Ritholtz at britholtz3@bloomberg.net.

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